UK construction companies experienced another sharp downturn in business activity and incoming new work at the end of 2025, according to latest PMI data.

However, December's rates of contraction eased from the five-and-a-half year records seen in November. Job shedding also moderated since the previous survey period, helped by an improvement in business activity expectations to the highest since July.

The seasonally adjusted S&P Global UK Construction Purchasing Managers’ Index (PMI) – a headline index tracking changes in total industry activity – registered 40.1 in December, up from 39.4 in November.

But December’s figures remained well below the neutral “no change” 50.0 value for the 12th successive month. The latest reading was the second-lowest since May 2020 and marked the end of a difficult year for the sector.

Civil engineering was the weakest-performing category of construction activity in December (index at 32.9), despite recording a softer rate of contraction than in November. Meanwhile, both housing activity (33.5) and commercial construction (42.0) decreased to the greatest extent since May 2020.

Anecdotal evidence suggested that fragile confidence among clients and subdued underlying demand had resulted in lower workloads at the end of the year. Many firms also noted that delayed investment decisions ahead of the Budget in November had weighed on their sales pipelines.

December data signalled a sharp decline in total new work across the construction sector. Reduced volumes of new business were recorded in each month of 2025, but the pace of contraction moderated since November.

Despite sluggish demand conditions and a lack of new orders to replace completed projects, the latest survey pointed to a recovery in business optimism at UK construction companies.

Around 37% of the survey panel predict a rise in output levels during the year ahead, compared to 20% that forecast a decline. This signalled the highest level of business confidence for five months.

A number of firms cited forthcoming new work in the utilities sector, related to investments in water and energy infrastructure. Lower interest rates and an improvement in domestic economic conditions were also reported as factors that could help to boost construction activity over the course of 2026.

Tim Moore, economics director at S&P Global Market Intelligence, said: “UK construction companies once again reported challenging business conditions and falling workloads in December, but the speed of the downturn moderated from the five-and-a-half-year record seen in November.

“Many firms cited subdued demand and fragile client confidence. Despite a lifting of Budget-related uncertainty, delayed spending decisions were still cited as contributing to weak sales pipelines at the close of the year

Brian Smith, head of cost management at AECOM, said the figures reflected hopes that this may be the start of a recovery for the sector

“This week’s icy conditions somewhat reflect the mood of the construction industry and could prevent a fast start to the year. But, as today’s figures show, things are starting to improve for contractors and January will all be about positioning themselves to gradually expand capacity and be on the front foot to win new work when it comes.

“Everything points towards a further slowdown in inflation and cuts in interest rates to match this year, which will embolden clients and developers to kickstart schemes left on the back burner. However, if everything starts at once, it’s essential that the planning system is equipped to manage the uptick in projects – embracing AI and digital tools to complement the influx of new planners will prove crucial.”